Pakistan's risk of default spikes to 13-year high of 52.8 per cent
Oct 28, 2022
Karachi [Pakistan], October 28 : The cost to safeguard Pakistan's sovereign debt from default has reached a 13-year high at 52.8 per cent due to the rating downgrades and worries about debt restructuring among international investors over its ability to meet bond payments.
Pakistan's risk of default, measured by the 5-year credit default swap (CDS), on Tuesday, spiked by 3.07 percentage points in a day and hit a 13-year high at 52.8 pc, suggesting foreign investors had lost their faith in the country, reported The Express Tribune.
The CDS hovered around 5 per cent to 6 per cent before the Covid-19 outbreak in Pakistan in February 2020. It hit the then peak of around 30 per cent in the middle of this year over the uncertainty revolving around the revival of the International Monetary Fund (IMF) loan programme.
Later on, the CDS slightly recovered amid the global lender resuming its USD 6.5 billion programmes in late August 2022 and subsequently releasing a tranche of USD 1.2 billion.
However, these days it is again climbing suddenly, signalling that foreign investors saw that Pakistan would fail to repay the maturing debt, reported The Express Tribune.
The country is due to return USD 1 billion to foreign investors against the maturing of the 5-year Sukuk on December 5, 2022.
Foreign investors have panicked amid the country's foreign exchange reserves depleting by around USD 9 billion in the past 10 months, reported The Express Tribune.
They have dropped to a critically low level at around 1.10-month import cover at USD 7.6 billion at present compared with USD 20 billion (three-month import cover) in August 2021.
Foreign investors have panicked following the global rating agencies Moody's and Fitch downgrading Pakistan's credit rating in recent weeks.
The two agencies have revised the credit rating on the assessment that the domestic economy had suffered losses worth around USD 30-40 billion in the recent floods, reported The Express Tribune.
The situation is signalling to foreign investors that the country would default.
